Carlos Vecina Merchante
4. La educación intercultural: Un concepto a debate
ARDSHIP
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opean ESG E
ngagement P
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Set actionable objectives; Define milestones; Select strategy Implement engagement strategy with target (letter/ meeting/AGM vote) Engage other shareholders and stakeholders if neededIn summary, the third phase of the engagement process thus concerns setting success criteria and milestones for engagement and selecting the method(s) for engagement, possibly including other investors. This phase can be characterised as involving internal and external resources, and is con- tinuous in the sense that the process is on-going.
Figure 9: The Third Phase of Engagement (Source: Eurosif, 2013).
Illustration 6: RobecoSAM
This case study illustrates the value of on-site visits in order to assess ESG risks.
Following the blowout on the Deepwater Horizon on 20 April 2010, RobecoSAM start- ed a 3-year engagement with BP as the blowout was defined as a structural breach of the UN Global Compact principles incorporated into RobecoSAM’s investment management. As part of the engagement, RobecoSAM recently went to Houston to see how BP manages risk in wells.
One response of BP to the disaster was the set-up of a Monitoring Centre in Houston (HMC), where all Gulf of Mexico operations can be monitored. The centre allows remote monitoring of real-time data, and surface and subsurface video control of the drilling op- erations. In the worst-case scenario of a blowout, BP has access to its own capping stack in addition to industry-shared equipment around the globe, aimed to stop any leak at a BP well in the world in less than 10 days.
RobecoSAM considers that the engagement with BP on this particular issue is progressing favourably and can soon be closed effectively as BP is making good progress on implement- ing the 26 recommendations of a report aimed at preventing another blowout. BP’s safety standards are now better aligned with the risk exposure which, together with the company’s general streamlining, reduces the risk of its deepwater activities.
The relevance for investors such as RobecoSAM is that by taking the situation at BP as a base line, it knows better which questions to ask other companies active in deepwater drilling. This will help investors to identify the companies that are most advanced in risk control, and find early warning signs of operational risks.
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2.5. Phase 4: Evaluating Outcome and Need for Escalation
The fourth phase of the engagement process involves measuring and evaluating the progress to- wards a successful outcome and determining the need for adjusting the action or escalating the
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THE ST
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THE FIVE PHASES OF ENGA
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intensity. Although it is obviously preferable to encounter little resistance in the engagement pro- cess, investors often do encounter obstacles in their engagement with companies. The menu of engagement tactics is not different from those in the third phase, but it may be necessary to adapt the weapon of choice.
Measuring the progress of the engagement effort and selecting the right time and method for es- calating the engagement is more of an art than a science. Many investors will track the progress in spreadsheets with defined milestones and timelines. For example, if the company has not respond- ed to a letter or an email after one month, a telephone call to request a meeting may be necessary. However, it is also good practice to give the company sufficient time to respond to the issue and set realistic deadlines for company actions. Large companies especially move slowly, and getting the issue to the right person can be a slow process internally in the company. Additionally, if the issue is to be raised at board level, the engager must also take into account that many boards meet less than once a month with agendas that are often set weeks in advance. For instance, the full board of Shell met eight times in 2012, so getting an issue on the agenda of the board can take time. Companies may also have internal barriers that frustrate the engagement process. For example, “[a]t one continental European industrial company, the IR officer insisted that a major institutional shareholder meet him first, even though the investor was seeking personal assurances from the CEO that remedial measures undertaken in response to the findings of an internal investigation were progressing well. This lack of access to the CEO contributed to the decision by the institu- tional shareholder not to support the discharge of the board at the AGM.” xIv
Another tactic could be to submit a shareholder proposal at the company’s annual general meeting (AGM). This is, however, sometimes viewed as a last step in the engagement process that is used if all other avenues for dialogue have failed. Particularly in Europe, shareholder resolutions on ESG matters are rare, although they are used more regularly in US companies (both by local and foreign investors). Differing legal frameworks can, however, act as a barrier to submitting shareholder pro- posals especially across borders. xIvi
In many cases, it can be effective to build coalitions with other investors and engage as a group, if the concerns raised by one investor are relevant to others. This type of collaboration can be formal or informal, and not only increases the probability of success, but can also reduce cost by spreading the time and expense on several investors.
In the event that numerous engagement efforts and collaborative engagement is not successful, the investor must decide whether to continue to pursue the case. In general, there are three choic- es for investors:
• Continue engaging with the company. This is especially relevant for investors who do not have the mandate to divest from a company due to ESG issues, as is the case with many index investors.
• Reduce exposure to the company. Investors may consider reducing their stake in the compa- ny in order to reduce the perceived risk from the issue under engagement.
• Divest the company from portfolio. Investors will sometimes remove a company from its in- vestible universe due to an ESG issue, either because of the reputational or financial risk involved.